Sources: FBI investigating Morales in settlement case

DALLAS (AP) - The investigation into whether Texas' former attorney general tried to funnel a portion of the state's tobacco settlement to a friend is widening, The Associated Press has learned.

Dan Morales' successor, John Cornyn, and other sources familiar with the operations in the attorney general's office told the AP that the FBI has been looking at documents as well as whether Morales did anything improper in contracting a portion of the $17.3 billion settlement to Houston attorney Marc D. Murr.

Sources who asked to remain anonymous said the FBI has been comparing computer hard-drive data to a paper analysis to determine whether Morales backdated four contracts and letters in an attempt to make it appear that Murr was involved in the case earlier.

The FBI, which routinely refuses to discuss investigations, did not return telephone messages requesting comment.

Morales denied that he or any of the lawyers who worked on the tobacco settlement did anything wrong.

"I think that once all of the facts and circumstances have been reviewed, there's no doubt in my mind the conclusion will be evident that no unethical or improper activity on the part of any of the lawyers occurred, including my office," Morales told The Associated Press on Saturday.

Morales led Texas' effort to sue eight tobacco companies and three trade groups in March 1996 seeking reimbursement of about $8.6 billion in Medicaid funds spent on Texans' smoking-related illnesses dating to 1968. The case never went to trial; a settlement eventually grew to $17.3 billion.

Five private attorneys who helped represent the state were awarded a total $3.3 billion in fees. In December 1997, Murr asked for $520 million for his role as an adviser to Morales.

A state arbitration panel approved half - or $260 million - even though the other attorneys said Murr did little or no work on the case. Some people associated with the case said they had never heard of Murr when the deal with the tobacco companies was being negotiated.

Morales suggested the dispute over Murr's share of the settlement stems from reluctance to share the fees by the other attorneys involved.

"What I suspect is occurring is simply a tussle between and among the lawyers," Morales said. "Obviously there's just one fixed pot of attorneys' fees available and they don't want it diluted."

He also highlighted the arbitration panel's decision that Murr should get $260 million. "All six of these attorneys performed valuable work for the state over the course of the entirety of the investigation in late 1995 and early 1996," Morales said.

Murr says he contributed 2,000 hours working with Morales to craft strategy and draft part of the agreement.

The Murr controversy reportedly is under scrutiny by the Justice Department in Washington as well as by Cornyn's office. Morales, a Democrat, decided in 1997 not to run for a third term; Cornyn, a Republican, defeated Jim Mattox last fall.

Murr's attorney, Roy G. Minton of Austin, said he has cooperated with Cornyn's investigation, but the FBI has never approached him.

"I don't know what they're investigating, or frankly if they are," he said.